Jump to content

Robinhood Markets

From Wikipedia, the free encyclopedia

This is an old revision of this page, as edited by The Eloquent Peasant (talk | contribs) at 12:38, 11 August 2020 (source). The present address (URL) is a permanent link to this revision, which may differ significantly from the current revision.

Robinhood Markets Inc.
Company typePrivate
FoundedApril 18, 2013; 11 years ago (2013-04-18)
FounderVladimir Tenev (co-founder)
Baiju Bhatt (co-founder)
Headquarters
Menlo Park, California
,
United States
Key people
Jason Warnick (CFO)
Gretchen Howard (COO)
ServicesStockbroker
Electronic trading platform
AUM50 billion(est.)[1]
Number of employees
1,281 (2020[2])
SubsidiariesRobinhood Financial, LLC.
Robinhood Crypto, LLC.
Robinhood Securities, LLC.
Websitewww.robinhood.com

Robinhood Markets, Inc. is an American financial services company headquartered in Menlo Park, California.[3][4] The company offers a mobile app and website that offer people the ability to invest in stocks, ETFs, and options through Robinhood Financial and crypto trading through Robinhood Crypto.[5] Robinhood operates a website and mobile apps for iPhone, Apple Watch, and Android.[6][7][8] The company has no storefront branches and operates entirely online without fees.[9]

Robinhood is a FINRA regulated broker-dealer, registered with the U.S. Securities and Exchange Commission, and is a member of the Securities Investor Protection Corporation.[10][3] The company's main source of revenue comes from interest earned on customers' cash balances, selling order information to high-frequency traders and margin lending.[11][12] The company has 10 million users.[13]

History

Robinhood was founded in April 2013 by Vladimir Tenev and Baiju Bhatt, who had previously built high-frequency trading platforms for financial institutions in New York City.[10][14] The company's name comes from its mission to "provide everyone with access to the financial markets, not just the wealthy". Tenev noted that executing a trade cost brokerages "fractions of a penny" but they typically charged fees of $5 to $10 per trade, as well as required account minimums of $500 to $5,000.[15][16]

The app showcased publicly for the first time at LA Hacks, and was then officially launched in March 2015.[17]

As of January 2015, 80% of the firm's customers belonged to the "Millennial" demographic and the average customer age was 26.[18] Fifty percent of users who have made a trade use the app daily and 90% use the app weekly.[19] By February 2018, Robinhood had had 3 million user accounts, around the same number as the online broker E-Trade.[20]

In April 2017, Robinhood raised $110 million at a $1.3 billion valuation led by Yuri Milner of DST Global, Greenoaks Capital, and Thrive Capital.[21][22] On May 10, 2018, Robinhood closed a $363 million Series D financing round led by DST Global.[23] As of May 2018, Robinhood raised a total of $539 million in venture capital funding, with the last valuation at $5.6 billion, up from their previous evaluation of $1.3 billion.[23] In May 2019, reports from Bloomberg and other outlets publicized Robinhood’s pursuit of an additional $200 million in funding, which could value the company in the $7 billion to $10 billion range.[24][25] In November 2019, Robinhood announced its expansion to the United Kingdom.[26]

In May 2020, it was announced that Robinhood had raised $280 million in venture funding at a pre-money valuation of $8.3 billion led by Sequoia Capital.[27]

Products

Stock and ETF trading

Robinhood's original product was commission-free trades of stocks and exchange-traded funds. In February 2016, Robinhood introduced instant deposits, crediting users instantly for deposits up to $1,000; previously, funds took three days to appear via ACH transfer.[9] In September 2016 they launched Robinhood Gold, a premium subscription plan that offers up to $50,000 in instant deposits, margin trading, and more market analytics.[28] As of February 2017, the company had executed over $30 billion in trades.[11] In August 2017, the company began offering free stocks in exchange for referring new users.[29] Robinhood has prohibited its users from purchasing some high-risk penny stocks, such as banning purchases of Helios and Matheson Analytics, the owner of MoviePass, in August 2018.[30]

In October 2019, several major brokerages such as E-Trade, TD Ameritrade, and Charles Schwab announced in quick succession they were eliminating trading fees. Competition with Robinhood was cited as a reason.[31][32][33] Although, Charles R. Schwab said that it was within his brokerage's intentions to eventually eliminate trading fees, as the firm had historically been a discount broker.[34] Support for purchasing fractional shares and automatic dividend reinvestment was introduced in December 2019.[35] Automatic recurring investments were introduced in May 2020.[36]

Cryptocurrency trading

On January 25, 2018, Robinhood announced a waitlist for commission-free cryptocurrency trading.[37][38] By the end of the first day, the waitlist had grown to more than 1,250,000.[39] Robinhood began offering trading of Bitcoin and Ethereum to users in California, Massachusetts, Missouri, and Montana in February 2018.[40] In May 2018, Robinhood expanded its trading platform to Wisconsin and New Mexico.[41]

Banking

In June 2018, it was reported that Robinhood was in talks to obtain a United States banking license, with a spokesperson from the company claiming the company was in "constructive" talks with the U.S. OCC.[42]

In December 2018, Robinhood announced checking and savings accounts, with debit cards issued by Ohio-based Sutton Bank would be available in early 2019.[43] Robinhood claimed the accounts would have a 3% annual interest rate; at the time of the announcement the highest interest rate on a savings account from a licensed bank was 2.36%.[44] Robinhood initially claimed the accounts would be SIPC insured, which the SIPC denied.[45] The products were rebranded as "Cash Management" the next day.[46] In January 2019 the waitlist and sign-up page were removed from the app.[47] A new Cash Management feature was announced in October 2019, with FDIC insurance from various partner banks and an annual 2.05% interest rate, though lowered before launch to 1.8% after a federal rate cut.[48] The feature launched in December 2019.[49]

Controversies

Payment for order flow

Bloomberg News reported in October 2018 that Robinhood had received almost half of its revenue from payment for order flow.[50] The company later confirmed this on its corporate website when asked by CNBC.[51] The Wall Street Journal found that Robinhood "appears to be taking more cash for orders than rivals," by up to a 60-to-1 ratio, according to its regulatory filings.[52]

FINRA fined Robinhood $1.25M in December 2019 for failing to ensure that its customers received the best price for orders. All of Robinhood's trades between October 2016 and November 2017 were routed to companies that paid for order flow, and the company did not consider the price improvement which may have been obtained through other market makers.[53]

Security breach

In July 2019, Robinhood admitted to storing customer passwords in cleartext and in readable form across their internal systems, according to emails it sent to the affected customers. Robinhood declined to say how many customers were affected by the error and claims that it did not find any evidence of abuse.[54]

Infinite leverage

In November 2019, WallStreetBets subreddit shared a Robinhood money glitch that allowed Robinhood Gold users to borrow unlimited funds. The loophole was closed shortly thereafter and the accounts that exploited it were suspended, but not before some accounts recorded six figure losses by using what WallStreetBets users dubbed the "infinite money cheat code."[55][56][57]

Outages

On Monday, March 2, 2020, Robinhood suffered a systemwide, all-day outage during the largest daily point gain in the Dow Jones' history, preventing users from performing most actions on the platform, including opening and closing positions.[58] During this outage the S&P 500 climbed more than 4.6%.[59] Robinhood users postulated that the outage was the result of a coding error regarding leap year handling for Sunday, February 29, 2020. Robinhood denied these claims.[60] Robinhood said that they will offer compensation on a case by case basis.[61] Robinhood experienced another major systemwide outage on March 9th.[62] Robinhood is currently facing three lawsuits due to outages in March 2020.[63]

Suicide of Alexander E. Kearns

Robinhood faced controversy in June 2020 after University of Nebraska student Alexander E. Kearns committed suicide after seeing a negative cash balance of U.S. $730,000 in his Robinhood margin trading account. It was later discovered that this was a temporary negative balance due to unsettled trading activity.[64][65] In his suicide note, Kearns accused Robinhood of allowing him to pile on too much risk.[66] In a press release, Robinhood promised considering additional criteria and education for customers seeking level 3 options authorization.[67][68][69]

References

  1. ^ https://www.brokerage-review.com/investing-firm/assets-under-management/robinhood-aum.aspx
  2. ^ "Robinhood Company Profile". Craft. Archived from the original on July 7, 2020. Retrieved July 7, 2020. {{cite news}}: |archive-date= / |archive-url= timestamp mismatch; December 9, 2019 suggested (help)
  3. ^ a b Gannes, Liz (September 23, 2014). "With $13 Million, Robinhood Aims to Share the Stock-Trade Wealth". Recode. Archived from the original on March 23, 2019. Retrieved March 23, 2019.
  4. ^ "Robinhood lures digital coin traders from Coinbase with a free service". Digital Trends. February 22, 2018. Archived from the original on May 18, 2018. Retrieved May 17, 2018.
  5. ^ PYMNTS (December 4, 2019). "Robinhood Tops 10M Subscribers". PYMNTS.com.
  6. ^ Tweedie, Steven (24 April 2015). "Best new Apple Watch apps I should download first". Business Insider. Archived from the original on 7 May 2015. Retrieved 15 May 2015.
  7. ^ WOHLSEN, MARCUS (11 December 2014). "Stock Trading for the Touch-ID Era Has Finally Arrived". Wired. Archived from the original on 18 March 2017. Retrieved 11 March 2017.
  8. ^ "Robinhood stock trading comes to web with finance news for its 3M users – TechCrunch". techcrunch.com. Archived from the original on 2018-05-03. Retrieved 2018-05-02.
  9. ^ a b "Robinhood Ditches 3-Day Wait, Fronts New Users $1000 To Buy Stocks". TechCrunch. Retrieved 2019-11-17.
  10. ^ a b Touryalai, Halah (26 February 2014). "Forget $10 Trades, Meet Robinhood: New Brokerage Targets Millennials With Little Cash". Forbes Magazine. Archived from the original on 12 September 2014. Retrieved 26 September 2014.
  11. ^ a b MORRISSEY, JANET (February 18, 2017). "With No Frills and No Commissions, Robinhood App Takes On Big Brokerages". New York Times. Archived from the original on February 19, 2017. Retrieved March 17, 2017.
  12. ^ Kane, Logan. "Robinhood Is Making Millions Selling Out Their Millennial Customers To High-Frequency Traders". Seeking Alpha. Archived from the original on 21 March 2019. Retrieved 13 February 2019.
  13. ^ Business, Jordan Valinsky, CNN. "What made the Robinhood app crash? Record trading as the market soared and tanked". CNN. Retrieved 2020-03-04. {{cite web}}: |last= has generic name (help)CS1 maint: multiple names: authors list (link)
  14. ^ Carney, Michael (December 28, 2013). "Robinhood gets $3M to take from Wall St. and give to Main St. with its mobile-first, zero-commission brokerage". PandoDaily. Archived from the original on May 13, 2014. Retrieved May 7, 2014.
  15. ^ Touryalai, Halah. "Forget $10 Trades, Meet Robinhood: New Brokerage Targets Millennials With Little Cash". Forbes. Archived from the original on 2019-08-06. Retrieved 2019-11-09.
  16. ^ "Our Story". Robinhood. Archived from the original on 2019-11-09. Retrieved 2019-11-09.
  17. ^ Long, Heather (2015-03-12). "New Robinhood app offers free trading. Millennials jump in". CNNMoney. Archived from the original on 2019-07-17. Retrieved 2019-07-17.
  18. ^ Huang, Daniel (January 6, 2015). "Young, Poor and Looking to Invest? Robinhood Is the App for That". Wall Street Journal. Archived from the original on September 11, 2017. Retrieved August 4, 2017.
  19. ^ Constine, Josh (September 23, 2014). "Robinhood Raises $13M To Democratize Stock Market With Zero-Commission Trading App". TechCrunch. AOL. Archived from the original on March 18, 2017. Retrieved March 17, 2017.
  20. ^ Chafkin, Max; Verhage, Julie (2018-02-08). "Brokerage App Robinhood Thinks Bitcoin Belongs in Your Retirement Plan". Bloomberg Businessweek. Archived from the original on 2018-02-08. Retrieved 2018-02-09.
  21. ^ Irrera, Anna (April 26, 2017). "Trading startup Robinhood raises $110 million in new funding round". Reuters. Archived from the original on August 28, 2018. Retrieved August 27, 2018.
  22. ^ McBride, Sarah (April 26, 2017). "Robinhood's Stock Trading App Is Valued at $1.3 Billion". Bloomberg News. Archived from the original on May 14, 2017. Retrieved May 14, 2017.
  23. ^ a b Lynley, Matthew (2018-05-10). "Free stock trading app Robinhood rockets to a $5.6B valuation with new funding round". TechCrunch. Archived from the original on 2019-04-11. Retrieved 2019-04-24.
  24. ^ "Robinhood Is Set to Raise at Least $200 Million in New Funding". 2019-06-07. Archived from the original on 2019-06-02. Retrieved 2019-06-07.
  25. ^ Lynley, Matthew (2018-05-10). "Free stock trading app Robinhood rockets to a $5.6B valuation with new funding round". TechCrunch. Archived from the original on 2019-04-11. Retrieved 2019-04-24.
  26. ^ "Robinhood launches… UK waiting list". TechCrunch. Retrieved 2019-11-21.
  27. ^ Roberts, Jeff John (May 4, 2020). "Robinhood raises $280 million in push for global expansion". Fortune. Retrieved 2020-05-04.{{cite web}}: CS1 maint: url-status (link)
  28. ^ "Free stock trade app Robinhood monetizes with $10/month to buy on credit". TechCrunch. Retrieved 2019-11-18.
  29. ^ Constine, Josh (April 26, 2017). "Robinhood stock-trading app confirms $110M raise at $1.3B valuation". TechCrunch. Archived from the original on April 6, 2018. Retrieved April 6, 2018.
  30. ^ GmbH, finanzen net. "Robinhood shuts customers out of buying shares of MoviePass' parent company after the stock crashed more than 99.99% (HMNY) | Markets Insider". markets.businessinsider.com. Retrieved 2019-11-13.
  31. ^ "Lookout, Robinhood. E*Trade, Schwab, Ameritrade go zero-fee". TechCrunch. Retrieved 2019-11-09.
  32. ^ Fitzgerald, Maggie (2019-10-01). "Charles Schwab is ending commissions on stock trading and the brokerage shares are tanking". CNBC. Archived from the original on 2019-11-06. Retrieved 2019-11-09.
  33. ^ Beilfuss, Alexander Osipovich and Lisa. "Schwab Cuts Fees on Online Stock Trades to Zero, Rattling Rivals". WSJ. Archived from the original on 2019-11-05. Retrieved 2019-11-09.
  34. ^ "Famed Investor Charles Schwab on The David Rubenstein Show". Retrieved February 20, 2020.{{cite web}}: CS1 maint: url-status (link)
  35. ^ Rooney, Kate (2019-12-12). "Robinhood joins a wave of fractional stock-trading offers to bring investing to the masses". CNBC. Archived from the original on 2019-12-12. Retrieved 2019-12-12.
  36. ^ "Recurring Investments". Robinhood. Retrieved 2020-05-14.
  37. ^ Cheng, Evelyn (25 January 2018). "Stock trading app Robinhood to launch bitcoin, ethereum trading in five states". CNBC. Archived from the original on 25 January 2018. Retrieved 25 January 2018.
  38. ^ John Roberts, Jeff (25 January 2018). "Robinhood, the Investing App for Millennials, to Add Bitcoin and Other Cryptocurrencies". Fortune. Archived from the original on 25 January 2018. Retrieved 25 January 2018.
  39. ^ "Invest in Bitcoin & other cryptocurrencies, 24/7 & commission-free". Robinhood. 25 January 2018. Archived from the original on 27 July 2019. Retrieved 7 February 2020.
  40. ^ "Robinhood Opens Cryptocurrency Trading". Bloomberg.com. 2018-02-22. Archived from the original on 2018-04-29. Retrieved 2018-04-11.
  41. ^ "Robinhood's Crypto Trading Platform Expands to Wisconsin and New Mexico | Finance Magnates". Finance Magnates | Financial and business news. 2018-05-07. Archived from the original on 2018-05-16. Retrieved 2018-05-17.
  42. ^ "Robinhood in Talks With Regulators to Offer Bank Products". Bloomberg.com. Archived from the original on 2018-06-22. Retrieved 2018-06-22.
  43. ^ Robinhood launches no-fee checking/savings with Mastercard & the most ATMs Archived 2018-12-14 at the Wayback Machine. TechCrunch. 13 December 2018.
  44. ^ Passy, Jacob. "Robinhood tempts savers with 3% interest on checking accounts — but regulatory stop sign reveals a clumsy rollout". MarketWatch. Archived from the original on 2019-12-21. Retrieved 2019-11-09.
  45. ^ Robinhood said to not be properly insured to offer checking & savings Archived 2018-12-14 at the Wayback Machine. TechCrunch. 14 December 2018.
  46. ^ A Letter From Our Founders Archived 2020-01-07 at the Wayback Machine. 14 December 2018.
  47. ^ Robinhood quietly stops users from signing up for cash accounts amid scrutiny from regulators Archived 2019-01-24 at the Wayback Machine. MarketWatch. 2 January 2019.
  48. ^ Rooney, Kate (2019-10-08). "Robinhood makes second attempt at launching a high-yield account similar to banks". CNBC. Archived from the original on 2019-10-08. Retrieved 2019-10-08.
  49. ^ Peters, Jay (2019-12-12). "Robinhood launches cash management feature a year after bungling its checking account launch". The Verge. Archived from the original on 2019-12-12. Retrieved 2019-12-12.
  50. ^ Foxman, Simone (October 16, 2018). "Robinhood Gets Almost Half Its Revenue in Controversial Bargain With High-Speed Traders". Bloomberg. Archived from the original on 19 January 2019. Retrieved 18 January 2019.
  51. ^ "CNBC: How Robinhood Makes Money". CNBC. January 16, 2019. Archived from the original on 18 January 2019. Retrieved 18 January 2019.
  52. ^ Beilfuss, Alexander Osipovich and Lisa. "Why 'Free Trading' on Robinhood Isn't Really Free". WSJ. Archived from the original on 2019-08-15. Retrieved 2019-08-24.
  53. ^ Matt Robinson (2019-12-19). "Robinhood Fined $1.25 Million Over How It Routed Customer Orders". Bloomberg. Archived from the original on 2020-01-02. Retrieved 2020-01-02.
  54. ^ Cimpanu, Catalin. "Robinhood admits to storing some passwords in cleartext". ZDNet. Archived from the original on 2019-08-01. Retrieved 2019-08-24.
  55. ^ Rooney, Kate (2019-11-05). "'Infinite leverage' — some Robinhood users have been trading with unlimited borrowed money". CNBC. Archived from the original on 2019-11-08. Retrieved 2019-11-09.
  56. ^ Brandon Kochkodin (2019-11-05). "Robinhood Traders Discovered a Glitch That Gave Them 'Infinite Leverage'". Bloomberg. Archived from the original on 2019-12-11. Retrieved 2020-01-02.
  57. ^ GmbH, finanzen net. "The jig is up: Robinhood says it's closed the 'infinite leverage' loophole that allowed users to build positions worth millions | Markets Insider". markets.businessinsider.com. Retrieved 2019-11-09.
  58. ^ Verhage, Julie (2020-03-02). "Robinhood Suffers Online Outage With U.S. Stocks Rebounding". Bloomberg. Retrieved 2020-03-02.
  59. ^ "Bloomberg - Robinhood Is Raising New Funds at About $8 Billion Value, Sources Say". www.bloomberg.com. Retrieved 2020-05-10.{{cite web}}: CS1 maint: url-status (link)
  60. ^ "Robinhood suffers prolonged outage on the day the Dow enjoyed its single biggest point gain". TechCrunch. Retrieved 2020-03-02.
  61. ^ "Down again, Robinhood will offer 'case-by-case' compensation for its outage on the day markets gained $1.1 trillion". TechCrunch. Retrieved 2020-03-05.
  62. ^ GmbH, finanzen net. "Robinhood crippled by another major outage as markets absorb historic sell-off | Markets Insider". markets.businessinsider.com.
  63. ^ "Robinhood Faces Three Lawsuits Over Outages". Financial Advisor IQ.
  64. ^ Klebnikov, Sergei (2020-06-17). "20-Year-Old Robinhood Customer Dies By Suicide After Seeing A $730,000 Negative Balance". Forbes. Retrieved 2020-06-18.
  65. ^ Celine, Tiziana (2020-06-18). "College Student Commits Suicide After Online Trading Platform Robinhood Showed His Negative $730,00 Debt". TechTimes. Retrieved 2020-06-18. {{cite web}}: Cite has empty unknown parameter: |1= (help)
  66. ^ Khorram, Yasmin; Rooney, Kate (18 June 2020). "Young trader dies by suicide after thinking he racked up big losses on Robinhood". CNBC. Retrieved 19 June 2020.
  67. ^ Bhatt, Baiju; Tenev, Vlad (19 June 2020). "Commitments to Improving our Options Offering" (Press release). robinhood blog. Retrieved 20 June 2020. {{cite press release}}: Cite has empty unknown parameters: |1=, |2=, and |3= (help)
  68. ^ Rooney, Kate (19 June 2020). "Robinhood increases guardrails on options trading in the wake of a customer suicide". CNBC. Retrieved 20 June 2020.
  69. ^ "Millions Turn To Stock Trading During Pandemic, But Some See Trouble For The Young". NPR.org. 2020-08-11. Retrieved 2020-08-11.


Retrieved from "https://en.wikipedia.org/w/index.php?title=Robinhood_Markets&oldid=972323243"